What are giftcards? Where is the money? How do they get the money? Where is the profit margin?

Question

What are giftcards? Where is the money? How do they get the money? Where is the profit margin?

In: Economics

Answer 1

Chain sells cards to stores for $45. They sell to customers for $50. Customer can spend up to $50 at said chain. The profit margin comes from the fact that not every customer will spend all $50 after they buy the gift card. If customers only spend $40 out of the $50 on average for whatever reason-lose/forget about the card, card has expiration date, they stop shopping at that chain, store never sells that gift card, etc- then chain makes $5 per card sold. You just have to correctly adjust what you sell the gift cards to the grocery store for